Financial Services Update

November 12, 2010

Authored by: Matt Jessee

Obama Trade Mission to Asia

On Friday, President Obama landed in Japan, the last leg of his 10-day, four-nation trade mission which included previous stops in India, Indonesia, and South Korea. The most recent stop in Seoul was marred by negotiators’ failure to finish a long-delayed U.S.-South Korea free trade agreement and squabbling at a G-20 summit over U.S. monetary policy. In Japan, Obama will attend an Asia-Pacific economic summit in Yokohama, which will set the stage for the next APEC summit scheduled for 2011 in Hawaii. He will also meet with Japan’s new prime minister, Naoto Kan, to discuss Japan’s potential membership in the U.S.-backed Transpacific Partnership free-trade initiative. However, Kan faces opposition from Japan’s politically powerful farm groups who oppose Japan’s membership in the trade measure.

Axelrod on Taxes and Healthcare

On Wednesday, White House Senior Advisor David Axelrod acknowledged during an interview that President Obama might agree to extend the Bush tax cuts for all income brackets. In the interview with the Huffington Post, Axelrod said ” we have to deal with the world as we find it. The world of what it takes to get this done. There are concerns that Congress will continue to kick the can down the road in the future by passing temporary extensions for the wealthy time and time again. But I don’t want to trade away security for the middle class in order to make that point.” Axelrod also said that President Obama would veto repeal of the recently passed health care reform law, which was the first time that a top Administration figure had issued such a threat on the record.

Deficit Commission Releases Preliminary Report

On Wednesday, Deficit Commission co-chairs former Clinton White House Chief of Staff Erskine Bowles and former Sen. Alan Simpson (R-WY) unveiled their preliminary report that would cut $200 billion in spending by 2015, raise taxes by $100 billion, and continue deficit cutting until 2020. However, Bowles and Simpson did not bring the report to a vote of the 16 other members of the commission because they acknowledged its passage was unlikely. The 18-member commission appointed by President Barack Obama earlier this year was supposed to produce a 14-vote majority around a deficit reduction plan – a margin that would have required Congress to vote on the package unchanged. But the commission was dominated by current Members of Congress who staked out inflexible partisan positions. The seven Republicans office-holders, including Sen. Judd Gregg of New Hampshire and Rep. Jeb Hensarling of Texas said they would not support a plan that raises taxes. The Democratic lawmakers on the commission, including Sen. Dick Durbin, D-Ill., said they would not agree to Social Security adjustments or Medicaid benefit cuts.

Under the preliminary proposal, military spending and farm subsidies are some of the largest proposed cuts. But the report also calls for linking Social Security benefits to income, raising the retirement age to 69 by 2050 and raising payroll taxes. The proposal also calls for new rules to curb Medicare growth and to increase the gasoline tax. Meanwhile, by limiting spending and raising taxes through comprehensive tax reform, the proposal would cut the near-record $1.3 trillion budget deficit by an average of $500 billion a year for the next nine years, stabilizing the rising national debt at about 65 percent of GDP by 2015 and lowering it to a long-run average of 40 percent GDP by 2024.

The Bowles-Simpson plan would rely on one of three tax reform options that would lower rates and close loopholes, effectively raising taxes $1 trillion over the next nine years, but reducing spending by $2.7 trillion, with most of the savings five years or more from now. Finally, the plan would cut interest payments on the national debt by $673 billion over nine years.

Ex-Bank Officials Face FDIC Lawsuits

It was reported this week that the Federal Deposit Insurance Corporation (FDIC) has told dozens of former bank officers and directors that it has drawn up lawsuits accusing them of fraud and breach of fiduciary duty. The purported suits follow year long investigations by FDIC officials seeking to recover more than $2 billion from more than 80 former bank officials. To date, only two civil suits have been filed. The first, filed in July, accuses four executives of Pasadena’s defunct IndyMac Bank of negligence. Last week, the FDIC sued 11 former insiders at defunct Heritage Community Bank in Glenwood, Ill.

More Information

If you have any questions regarding any of these issues, please contact:

Matt Jessee, Policy Advisor
1 314 259 2463